Coal India Ltd to revise penalty clause for fuel supply agreements

KOLKATA: Coal India will revise the penalty clause for the fuel supply agreements but has stuck to the 80% trigger level. It has officially agreed on price pooling and will import coal on behalf of power producers -- around 18-20 million tonnes this year.

Confirming the development, Coal India chairman S Narsing Rao said: "We will meet once again for finalising the penal clauses in the FSA during the middle of August. Nevertheless, we will supply 65% through domestic supply and the rest 15% will be imported by CIL."

The decision was arrived at the board meeting held in Kolkata on Tuesday. Although the board principally agreed to price pooling and importing coal, it has not decided on the model to be adopted for polling mechanism.

The pooling mechanism being mooted by the power ministry includes coal imports by CIL. Coastal thermal power plants will be using 30% of imported coal while units within 300 km of coast line will use 15%.

Rest of the thermal power generators will use 100% domestic coal that will be supplied by CIL. This increased price will be distributed equally for all consumers irrespective of the coal its suppliers use. Rao said: "The details have not been arrived at yet. We hope to finalise it at the next board meeting."

A CIL official, on the condition of anonymity, said: "Some of clauses with respect to the penalties are likely to be changed in the FSA." The fuel supply agreement model being mooted by power producers involved a trigger level reduced from 80% to 65% but raising the penalty to 10%.

However, it is not clear what the new penalty will be. Trigger point refers to a definite percentage of the contracted volume, which, if the coal producer fails to supply, will have to pay a penalty that will be a percentage of the penalty multiplied by the shortfall. CIL is not in a position to supply more than 65% of the coal requirements for units that are being considered for the new FSA.